Going virtual is the new normal, and going to an electronic, private type of money will soon be as normal as having a smartphone. Cryptocurrency, referred to as decentralized digital money, is managed by blockchains. There are thousands of cryptocurrencies, but only 13 of them are available for trading on exchanges. To understand how to get started with your cryptocurrency, let’s take it slow and figure out how it works and what the types of cryptocurrencies are.
Unlike traditional paper money, cryptocurrency is created and stored outside the central bank and is not controlled by the government. It has no physical form but is a set of encrypted data. The data is encoded with cryptography converting the data from one form to another and later decoded back by the end-user. The process practically eliminates any possibility of counterfeiting, thus reinforcing privacy and security. Simply put, the structure is very similar to uploading data in cloud storage like Google Drive.
Before the cryptocurrency got “real”, it existed as a theoretical construct. The technical foundations date back to the 1980s when David Chaum, an American cryptographer invented a “blinding” algorithm that remains central for present-day web-based encryption. 15 years later, Wei Dai, a software engineer, presented a virtual currency architecture with some of the basic components of modern cryptocurrencies.
Bitcoin was the first publicly used unit that combined decentralized control, transaction recording via blockchain, and user anonymity. In 2012, WordPress was the first to officially accept payment in Bitcoin. Today, Bitcoin is the world’s most popular and widely used cryptocurrency that starts being viewed as a legitimate means of exchange.
How secure is Cryptocurrency?
The decentralized feature keeps cryptocurrency safe from third-party servers, including government agencies. It means the cryptocurrency exchange is out of potential control of funds.
What about the risks?
On the other hand, being private, the technology is out of control, and there is no responsible institution to maintain the supply. Therefore, no record of the money and no "hard" money system for security when you can "touch" the money.
The crypto transactions are all processed anonymously, the utmost benefit that empowers the technology. The transactions are recorded on the blockchain, the decentralized ledger. The data (transactions, contracts, or certificates) can only be added to the blockchain, but not edited or deleted. Every new transaction is recorded on the blockchain that is public to other crypto holders, but the key point is that data on individual transactions are secured by cryptography.
Every crypto holder has a private key to authenticate identity and exchange units. The key may consist of up to 78 digits long. It is a passkey to obtain and spend cryptocurrency. If the key is lost, the holder will not have access to his wallet until the key is recovered. Securing a user account with a key is practical. On the other hand, once the key is lost, the holder will lose the holding protected by the old key and will have to start a new accumulation with a new key.
Being protective in terms of private keys is the first step of being a savvy cryptocurrency user. More often, the users save the key in different not internet-connected digital locations at one time.
Every crypto holder has a wallet with unique information and units. The wallet can be stored on an external storage device, on the cloud, or on an internal hard drive. Regardless of storage type, it is advised to have at least one backup.
The first years of cryptocurrency were quite shady; it was associated with non-legal money and black market operations. Fortunately, we are in constant development of technologies, and today cryptocurrency is mainstream. It is used for investments and shopping.
For many, cryptocurrency is a type of investment. Crypto trading is an alternative way to invest and have profit from the increased value.
What is the future of Cryptocurrency?
The value of cryptocurrencies is unstable, but they are mostly getting higher year by year. The global blockchain market also gets bigger, and by 2023, it will reach up to $23.3 billion. As for the cryptocurrency market size, it will reach $2.2 billion by 2026, at a CAGR of 7.1%. For 2021 Q1, the highest number of global daily Bitcoin transactions registered was 367,536.
- Defining the purpose for creating a cryptocurrency
- Considering the legal implications
- Defining the budget
- Hiring a qualified development team
- Hiring external auditors
- Promoting the project
- Growing the community
Foreseeing the big future of cryptocurrency most businesses go for blockchain technology to gain a significant advantage against the competitors. Besides getting a strong marketing tool and consumer benefits, creating your blockchain and cryptocurrency follows a list of advantages.
- Eliminating fraud risks
- Transaction anonymity
- Immediate transaction
- Access to new customer base
- Low operational costs
Where to start? Defining Crypto Coin and Crypto Token
Cryptocurrency (crypto coin) is an asset with its blockchain. A popular example of a crypto coin is Bitcoin. The second type of cryptocurrency is a crypto token that uses another blockchain instead of its own. An ERC20 token is a bright example of a crypto token that uses the Ethereum blockchain. It is much easier to create a cryptocurrency on an existing platform than to build your own blockchain. It is a significant factor to consider when starting with a cryptocurrency.
With the first step, you need to decide whether you are building a token or a coin. If your budget is limited, tokens can save resources on development by using an already existing blockchain like Ethereum or NEO. The token built on Ethereum is called ERC-20. Ethereum uses the Solidity programming language. It is a good start for building a cryptocurrency. The biggest advantage of NEO is the multiple programming languages.
Aside from creating crypto coins and crypto tokens, blockchain technology is widely used in healthcare, logistics, supply chain, etc., to provide more efficient business processes. Thus, the list of trending blockchains for 2021-2022 includes the top 10 platforms to be considered.
- Hyperledger fabric
- Hyperledger Sawtooth
- Corda 8 Tron
- Hedera Hashpraph
How to start with creating your cryptocurrency?
The process of building a cryptocurrency goes through several steps.
Step 1. Define business objectives at the initial stages.
Step 2. Choose a consensus mechanism. These mechanisms are the protocols for transactions to prove they are legitimate. Different blockchains work on different consensus mechanisms.
Step 3. Choose a blockchain platform. The choice will depend on the consensus mechanism, which, in its turn, will depend on the business objectives.
Step 4. Design the Nodes. Nodes are internet-connected devices that support a blockchain and perform tasks like storing data, processing transactions, etc. When designing nodes, you should decide whether the permissions are public or private, the hosting is cloud or on-premises, and finally, choose the base operating system (Ubuntu, Windows, Debain, Red Hat, CentOS, or Fedora).
Step 5. Establish blockchain internal architecture.
Once established, the parameters cannot be changed when the blockchain is running. Before the final step, make sure the following aspects are all cleared:
- Permissions. Define those who can access the data and perform transactions.
- Address formats. Decide on the address of the blockchain. Key formats. Decide on the format of the key generated for the signature.
- Asset insurance. Establish the rules of listing an asset unit.
- Asset re-insurance. Establish the rules of creating more units of the open asset.
- Key management. Develop the system of protecting private keys.
- Multisignatures. Define the number of keys required for transaction validation.
- Atomic swaps. Plan the smart contracts enabling cryptocurrency exchange.
- Parameters. Estimate maximum blockchain size, transaction limits, etc.
- Native assets. Define the rules of a native currency in the blockchain.
- Block signature. Define the signature of participants creating blocks.
- Hand-shaking. Decide the rules of identifying nodes when connecting them.
Step 6. If the platform does not have pre-built APIs, go for third-party blockchain API providers like Gem, ChromaWay, Bircore, Colu, BlockCypher, and Tierion.
Step 7. Design the Interface.
Step 8. Make your cryptocurrency legal. The cryptocurrency has stopped being on the dark side, and slowly the law is catching up with the segment. The regulations have come to protect investors and crypto holders from fraud. To make your cryptocurrency legal, you should define the business objectives and the business model where the coins will be used.
Cryptocurrency regulations monitor digital currencies and provide rules for the process of legalizing new crypto coins.
Bitcoin still leads the market, registering a meteoric rise since 2021 January. For the 2021 Q1, the cryptocurrency was priced at $54.113. One of the triggers of the market rise was the investment of Tesla in the cryptocurrency on $1.5bn.
For March 2021, Ethereum was trading at $1.837. Ethereum is a bit different from Bitcoin because it is more than a cryptocurrency. It is a network allowing developers to create their own cryptocurrency.
So far, Tether is the most stable cryptocurrency because it is tied to the U.S dollar. Being ensured by the Federal Reserve Bank, Tether has proved to be the best alternative for investments.
The technical process of building a cryptocurrency is complicated, but it is not the hardest part of launching the project. To make your business purpose work your token or coin should have value, infrastructure, and be trusted convincing investors to buy in. The process of creating and promoting the project involves a professional team of developers to give you the right support.